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MEYERS ASSOCIATES, L.P. CRD No. 34171 ("Respondent")
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ORDER TO CEASE AND DESIST NOTICE OF INTENT TO REVOKE AND NOTICE OF RIGHT TO HEARING DOCKET NO. RCF-10-7817-S |
I. PRELIMINARY STATEMENT
| 1. | The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), and the regulations promulgated thereunder (Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies) (“Regulations”). |
| 2. | Pursuant to Section 36b-26(a) of the Act, as amended by Public Act 10-141, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, has conducted an investigation into the activities of Respondent to determine if Respondent has violated, is violating or is about to violate provisions of the Act or Regulations (“Investigation”). |
| 3. |
As a result of the Investigation, the Commissioner has reason to believe that Respondent has violated certain provisions of the Act and Regulations. |
| 4. | As a result of the Investigation, the Commissioner has the authority to issue a cease and desist order against Respondent pursuant to Section 36b-27(a) of the 2010 Supplement to the General Statutes (“2010 Supplement”), as amended by Public Act 10-141. |
| 5. |
As a result of the Investigation, the Commissioner brings this administrative action pursuant to Section 36b-15 of the 2010 Supplement, as amended by Public Act 10-141, and Section 4-182(c) of the General Statutes of Connecticut to revoke the broker-dealer registration of Respondent in Connecticut.
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| 6. |
As a result of the Investigation, the Commissioner has the authority to impose a fine against Respondent pursuant to Section 36b-27(d) of the 2010 Supplement, as amended by Public Act 10-141. |
II. RESPONDENT
| 7. |
Respondent is a New York limited partnership with its principal place of business at 45 Broadway, Second Floor, New York, New York 10006. |
III. STATEMENT OF FACTS
| 8. | From September 23, 1994 to the present, Respondent has been registered in Connecticut under the Act as a broker-dealer. |
| 9. | As part of the Investigation, on or about April 8, 9 and 10, 2008, the Division conducted an examination of Respondent’s books and records at Respondent’s principal place of business. |
| 10. | Pursuant to the Investigation, Respondent provided the Division with a copy of Respondent’s written supervisory policies and procedures manual (“WSP”). |
| 11. | Section 3.1 of the WSP, “Prohibited Activities”, detailed the activities which were prohibited by Respondent and provided that, inter alia, no employee may engage in activities that require registration such as selling or trading securities without being properly registered. Furthermore, Section 5.5 of the WSP, “State Registrations”, requires that all supervisors of Respondent must ensure that their personnel are appropriately registered. |
| 12. | Section 10.23 of the WSP, “Blue Sky of Securities”, further detailed certain activities which were prohibited by Respondent and provided that, inter alia, it is prohibited to solicit or conduct business in states where the firm or its registered personnel are not registered or where the security is not “blue-skied”. In order to prevent these types of activities, the WSP mandates that supervisors must review order tickets and daily transaction reports for securities which are not “blue-skied”. |
| 13. | From at least January 2006 to the present, Respondent employed at least five agents who, on behalf of Respondent and without registration in Connecticut under the Act as agents of Respondent, effected trades in securities for the accounts of at least seven persons located in Connecticut. |
| 14. | From at least January to November 2006, Respondent, through its agents, made a total of at least six offers and sales of securities in Catuity Inc., Genaera Corp., Hemobiotech Inc., MDI Inc. and Neomagic Corp. for the accounts of at least three Connecticut customers. |
| 15. | The securities of Catuity Inc., Genaera Corp., Hemobiotech Inc., MDI Inc. and Neomagic Corp. were never registered in Connecticut under Section 36b-16 of the Act, as amended by Public Act 10-141, nor were they exempt from registration under Section 36b-21 of the 2010 Supplement, as amended by Public Act 10-141, nor were they covered securities. |
| 16. |
During the Investigation, the Division further discovered that Respondent charged a transactional “Handling Fee” of between Five Dollars ($5) and Fifty-five Dollars ($55) to each Connecticut customer, as well as a “Commission and/or Transaction Fee” in certain cases and a “Commission” and “Miscellaneous Fee” in other cases. However, Respondent failed to disclose to its Connecticut customers that the “Handling Fee” included a profit to Respondent, that certain customers paid lower fees and that the fee was not based on the costs of handling a particular transaction. Respondent’s omission was material to investors, and Respondent’s failure to adequately disclose the nature of these charges made Respondent’s limited explanation misleading. |
| 17. | On December 4, 2009, the Commissioner gave Respondent written notice pursuant to Section 4-182(c) of the General Statutes of Connecticut that Respondent may have engaged in conduct which, if proven, would constitute a basis for the suspension or revocation of Respondent’s broker-dealer registration in Connecticut, and gave Respondent the opportunity to show compliance with all lawful requirements for the retention of its registration as a broker-dealer in Connecticut. Respondent provided the Department with a response to the written notice. The response, however, was not persuasive. |
IV. STATUTORY AND REGULATORY BASIS FOR
ORDER TO CEASE AND DESIST,
REVOCATION OF REGISTRATION AS BROKER-DEALER
AND ORDER IMPOSING FINE
a. Wilful Violation of Section 36b-6(b) of the Act –
Employment of Unregistered Agents by a Broker-Dealer
| 18. | Paragraphs 1 through 17, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 19. |
Respondent’s employment of at least five unregistered agents, as more fully described in paragraph 13, constitutes a wilful violation of Section 36b-6(b) of the Act, as amended by Public Act 10-141, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer pursuant to Section 36b-15(a)(2)(B) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2010 Supplement, as amended. |
b. Wilful Violation of Section 36b-16 of the Act –
Offer and Sale of Unregistered Securities
| 20. | Paragraphs 1 through 19, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 21. |
Respondent effected at least six offers and sales of securities in Catuity Inc., Genaera Corp., Hemobiotech Inc., MDI Inc. and Neomagic Corp. for the accounts of at least three Connecticut customers, as more fully described in paragraph 14, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 15. The offer and sale of such securities absent registration constitutes a wilful violation of Section 36b-16 of the Act, as amended, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b 27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer pursuant to Section 36b-15(a)(2)(B) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent pursuant to Section 36b-27(d) of the 2010 Supplement, as amended. |
c. Violation of Section 36b-4(a) of the Act –
Fraud in Connection with the Offer and Sale of any Security
| 22. | Paragraphs 1 through 21, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 23. |
The conduct of Respondent, as more fully described in paragraph 16, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon any person. Such conduct constitutes a wilful violation of Section 36b-4(a) of the 2010 Supplement, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(B) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2010 Supplement, as amended. |
d. Violation of Section 36b-4(b) of the Act –
Dishonest and Unethical Practices in Connection with the
Offer and Sale of any Security
| 24. | Paragraphs 1 through 23, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 25. |
The conduct of Respondent, as more fully described in paragraph 16, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly engaging in a dishonest or unethical practice. Such conduct constitutes a wilful violation of Section 36b-4(b) of the 2010 Supplement, which forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Sections 36b-15(a)(2)(B) and 36b-15(a)(2)(H) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2010 Supplement, as amended. |
e. Dishonest and Unethical Practices –
Violation of FINRA Conduct Rules
| 26. | Paragraphs 1 through 25, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 27. |
The conduct of Respondent, as more fully described in paragraph 16, is conduct proscribed by the Financial Industry Regulatory Authority (formerly NASD) Conduct Rules 2210. Such conduct constitutes a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15a(b) of the Regulations and, as such, forms a basis for an order to cease and desist to be issued against Respondent under Section 36b-27(a) of the 2010 Supplement, as amended, and for the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(H) of the 2010 Supplement, as amended. |
f. Failure to Enforce and Maintain Adequate Supervisory Procedures
| 28. | Paragraphs 1 through 27, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 29. |
Respondent’s failure to ensure that its personnel were appropriately registered in the states in which Respondent’s personnel conducted business, in contradiction of its WSP, as more fully described in paragraphs 11 through 15, inclusive, constitutes a violation of Section 36b-31-6f of the Regulations. A wilful violation of Section 36b-31-6f of the Regulations forms a basis for an order to cease and desist to be issued against Respondent pursuant to Section 36b-27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(B) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent pursuant to Section 36b-27(d) of the 2010 Supplement, as amended. A violation of Section 36b-31-6f of the Regulations also forms a basis for the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(K) of the 2010 Supplement, as amended. |
| 30. | Respondent’s failure to ensure that the securities sold by its personnel were appropriately registered in the states in which they were sold, in contradiction of its WSP, as more fully described in paragraphs 11 through 15, inclusive, constitutes a violation of Section 36b-31-6f of the Regulations. A wilful violation of Section 36b-31-6f of the Regulations forms a basis for an order to cease and desist to be issued against Respondent pursuant to Section 36b-27(a) of the 2010 Supplement, as amended, the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(B) of the 2010 Supplement, as amended, and for the imposition of a fine against Respondent pursuant to Section 36b-27(d) of the 2010 Supplement, as amended. A violation of Section 36b-31-6f of the Regulations also forms a basis for the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(K) of the 2010 Supplement, as amended. |
V. ORDER TO CEASE AND DESIST, NOTICE OF INTENT TO REVOKE
REGISTRATION AS BROKER-DEALER, NOTICE OF INTENT TO FINE
AND NOTICE OF RIGHT TO HEARING
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Respondent has committed at least five violations of Section 36b-6(b) of the Act, as amended, at least six violations of Section 36b-16 of the Act, as amended, at least one violation of Section 36b-4(a) of the 2010 Supplement, at least one violation of Section 36b-4(b) of the 2010 Supplement, at least two violations of Section 36b-31-6f of the Regulations, and engaged in conduct that constitutes a dishonest or unethical practice in the securities business within the meaning of Section 36b-31-15a(b) of the Regulations;
WHEREAS, the Commissioner has reason to believe that Respondent has engaged in acts or conduct that, pursuant to Section 36b-15 of the 2010 Supplement, as amended, constitute grounds for revoking Respondent’s registration as a broker-dealer in Connecticut;
WHEREAS, the Commissioner further finds that the issuance of this Order to Cease and Desist, the issuance of an order revoking Respondent’s registration as a broker-dealer in Connecticut, and the imposition of a fine against Respondent is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policies and provisions of the Act;
WHEREAS, notice is hereby given to Respondent that its registration as a broker-dealer in Connecticut shall be revoked, subject to Respondent’s right to request a hearing on the allegations set forth above;
WHEREAS, notice is hereby given to Respondent that the Commissioner intends to impose a maximum fine not to exceed One Hundred Thousand Dollars ($100,000) per violation;
WHEREAS, the Commissioner ORDERS that Respondent CEASE AND DESIST from directly or indirectly violating the provisions of the Act and Regulations, including without limitation, (1) employing unregistered agents, (2) offering and/or selling unregistered securities, (3) in connection with the offer, sale or purchase of any security, directly or indirectly, employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates as a fraud or deceit upon any person, (4) engaging in dishonest or unethical business practices, and (5) failing to maintain and enforce adequate supervisory procedures;
AND WHEREAS, pursuant to Sections 36b-15(f) and 36b-27 of the 2010 Supplement, as amended, Respondent will be afforded an opportunity for a hearing on the allegations set forth above.
THE COMMISSIONER FURTHER ORDERS that a hearing will be granted to Respondent if a written request for a hearing is received by the Department of Banking, Securities Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800 within fourteen (14) days following Respondent’s receipt of this Order. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If Respondent will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”. Once a written request for a hearing is received, the Commissioner may issue a notification of hearing and designation of hearing officer that acknowledges receipt of a request for a hearing, designates a presiding officer and sets the date of the hearing in accordance with Section 4-177 of the General Statutes of Connecticut and Section 36a-1-21 of the Regulations of Connecticut State Agencies. If a hearing is requested, the hearing will be held on January 21, 2011, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
The hearing will be held in accordance with the provisions of Chapter 54 of the General Statutes of Connecticut. At such hearing, Respondent will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.
This Order to Cease and Desist shall remain in effect and become permanent against Respondent if Respondent fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
The Commissioner shall issue an order revoking Respondent’s registration as a broker-dealer in Connecticut if Respondent fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
The Commissioner may order that the maximum fine be imposed upon Respondent if Respondent fails to request a hearing within the prescribed time period or fails to appear at any such hearing.
| Dated at Hartford, Connecticut, | ________/s/________ | |
| this 23rd day of November 2010. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 24th day of November 2010, the foregoing Order to Cease and Desist, Notice of Intent to Revoke Registration as Broker-dealer, Notice of Intent to Fine and Notice of Right to Hearing was sent by certified mail, return receipt requested, to Meyers Associates, L.P., 45 Broadway, Second Floor, New York, New York 10006, certified mail no. 7010 0290 0002 7489 7983.
_______/s/_________
Jesse B. Silverman
Prosecuting Attorney